Financial Instruments

Fair Value Measurements

Financial instruments are categorized as Level 1, Level 2 or Level 3 based upon the method by which their fair value is computed. An investment is categorized as Level 1 when its fair value is based on unadjusted quoted prices in active markets for identical assets that the Company has the ability to access at the measurement date. An investment is categorized as Level 2 if its fair market value is based on quoted market prices for similar assets in active markets, quoted prices for identical or similar assets in markets that are not active, based on observable inputs such as interest rates, yield curves, or derived from or corroborated by observable market data by correlation or other means. An investment is categorized as Level 3 if its fair value is based on assumptions developed by the Company about what a market participant would use in pricing the assets.

The following table details the fair value measurements of the Company’s financial assets:



			Fair Value Measurement at December 29, 2018 Using:
	Total		Level 1		Level 2		Level 3
Cash and cash equivalents	$	14,326,347	$	14,326,347	$	—	$	—
U.S. government and agency backed securities	12,810,923		—		12,810,923		—
Corporate debt	10,107,093		—		10,107,093		—
GCS Holdings	288,026		288,026		—		—
Equity Investments	5,565,499		—		—		5,565,499
	$	43,097,888	$	14,614,373	$	22,918,016	$	5,565,499



			Fair Value Measurement at December 30, 2017 Using:
	Total		Level 1		Level 2		Level 3
Cash and cash equivalents	$	24,848,227	$	24,848,227	$	—	$	—
U.S. government and agency backed securities	34,725,811		6,927,323		27,798,488		—
Corporate debt	8,980,906		—		8,980,906		—
Certificates of deposit	200,740		—		200,740		—
GCS Holdings	478,546		478,546		—		—
Warrant	2,000,000		—		—		2,000,000
	$	71,234,230	$	32,254,096	$	36,980,134	$	2,000,000

Transfers between levels of the fair value hierarchy are reported at the beginning of the reporting period in which they occur. The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate fair value because of their short-term nature. If accrued liabilities were carried at fair value, these would be classified as Level 2 in the fair value hierarchy.

Changes in Level 3 investments are as follows:



	December 30, 2017		Net unrealized gains/(losses)			Purchases, issuances and settlements			Transfers in and or out of Level 3		December 29, 2018
Equity Investments	$	—	$	(284,317	)	$	5,849,816		$	—	$	5,565,499
Warrant	2,000,000		(50,184		)	(1,949,816		)	—		—
	$	2,000,000	$	(334,501	)	$	3,900,000		$	—	$	5,565,499

Equity Investments

Equity investments rarely traded or not quoted will generally have less (or no) pricing observability and a higher degree of judgment utilized in measuring fair value. Initial measurement of equity investments occurs when an observable price for the equity investment is available. The Company adopted ASU No. 2016-01 and the related amendments on December 31, 2017 (the first day of the Company's fiscal year 2018). This standard amends various aspects of the recognition, measurement, presentation, and disclosure of financial instruments. The Company adopted the measurement alternative for equity investments without readily determinable fair values (often referred to as cost method investments) on a prospective basis. As a result, these investments will be revalued upon occurrence of an observable price change for similar investments and for impairments.

Warrant

The Company had a warrant to acquire up to 15% of the next round of equity offered by a customer as part of the licensing of technology to the customer. The Company exercised the warrant in April 2018.

Marketable Debt Securities

The corporate debt consists of floating rate notes with a maturity that is over multiple years but has interest rates that are reset every three months based on the then-current three-month London Interbank Offering Rate ("three-month Libor"). The Company validates the fair market values of the financial instruments above by using discounted cash flow models, obtaining independent pricing of the securities or through the use of a model that incorporates the three-month Libor, the credit default swap rate of the issuer and the bid and ask price spread of the same or similar investments which are traded on several markets. Investments in available-for-sale marketable debt securities are as follows at December 29, 2018 and December 30, 2017:



	Amortized Cost				Unrealized Losses						Fair Value
	2018		2017		2018			2017			2018		2017
U.S. government and agency backed securities	$	13,064,418	$	35,014,593	$	(253,495	)	$	(288,782	)	$	12,810,923	$	34,725,811
Corporate debt	10,175,084		8,988,608		(67,991		)	(7,702		)	10,107,093		8,980,906
Certificates of deposits	—		201,000		—			(260		)	—		200,740
Total	$	23,239,502	$	44,204,201	$	(321,486	)	$	(296,744	)	$	22,918,016	$	43,907,457

The contractual maturity of the Company’s marketable debt securities is as follows at December 29, 2018:



	Less than One year		One to Five years		Total
U.S. government and agency backed securities	$	3,741,183	$	9,069,740	$	12,810,923
Corporate debt	2,709,074		7,398,019		10,107,093
Total	$	6,450,257	$	16,467,759	$	22,918,016